Question 1

Rags to Riches Selected data from the financial statements are provided below:
$\begin{array}{ll}
& \underline{ 2015 } &  \underline{ 2014 } \
 \text { Accounts Receivable } &\$ 120,000 & \$ 76,000 \
 \text { Inventory } &24,000 & 32,000 \
 \text {Total Assets  } &900,000 & 760,000 \
 \text { Net Sales } &760,000 & 540,000 \
 \text { Cost of Goods Sold } &320,000 & 420,000
\end{array}$ 
-Refer to Rags to Riches.Which of the following would result from a horizontal analysis of the company's balance sheet?
A)Accounts receivable increased $22,000 or 57.9% during 2015.
B)Accounts receivable is five times larger than inventory in 2015.
C)Accounts receivable is 13.3% of total assets in 2015.
D)The accounts receivable turnover ratio is 7.76 in 2015.

Accepted Answer

A horizontal analysis compares the same item from two different financial periods. Accounts receivable increased by $44,000 ($120,000 - $76,000), which is a 57.9% increase ($44,000/$76,000 x 100%). Therefore, option A is correct. Option B is incorrect because it compares two different items. Option C is incorrect because it calculates a ratio, not a horizontal analysis. Option D is incorrect because it requires additional data such as credit sales to calculate the receivables turnover ratio.

Question 2

Various financial ratios,including payout ratios,are categorized as ____________________ ratios.

Accepted Answer

The answer of Various financial ratios,including payout ratios,are categorized as...

Question 3

Which of the following would report the market price of the company's stock?
A)balance sheet.
B)income statement.
C)statement of cash flows.
D)Item 5 in Form 10-K.

Accepted Answer

Item 5 in Form 10-K is the Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), which includes information about the company's stock price performance and other factors that may have influenced it. The other financial statements (balance sheet, income statement, statement of cash flows) do not directly report the market price of the company's stock.

Question 4

A financial analyst is comparing two companies using a top-down approach.Which of the following would cause problems in the evaluation process?
A)One company's fiscal year-end is October 31,while the other company's fiscal year-end is December 31.
B)One company has been in business significantly longer than the other company.
C)Inflation has been low for several years.
D)The companies operate in different industries.

Accepted Answer

Comparing companies in different industries can make it difficult to make accurate evaluations since industry-specific factors and trends can greatly impact a company's performance.

Question 5

The working capital of a company is equal to
A)current assets less current liabilities
B)total assets less current assets
C)long-term assets less current assets
D)stockholders' equity

Accepted Answer

Working capital is a measure of a company's liquidity and is calculated by subtracting current liabilities from current assets. Therefore, option A is the correct answer.

Question 6

Various financial ratios,including return ratios,are categorized as ____________________ ratios.

Accepted Answer

The answer of Various financial ratios,including return ratios,are categorized as...

Question 7

Each of the following is included in the MD&A section of a public company's Form 10-K except: A)Material trends,events,or known uncertainties B)Statements about what management expects to occur in the future C)Management's views of the financial condition and performance of the company D)Names and experience of the company's managers,directors,and officers.

Accepted Answer

The names and experience of the company's managers, directors, and officers are typically included in the company's Proxy Statement or other filings with the Securities and Exchange Commission (SEC), but not in the MD&A section of Form 10-K, which focuses on the company's financial performance, trends, and future outlook.

Question 8

The auditor's opinions regarding effectiveness of a public company's internal controls and appropriateness of its financial statements are found within the Form 10-K on
A)Item 1.
B)Item 7.
C)Item 8.
D)Item 9.

Accepted Answer

The auditor's opinions regarding effectiveness of a public company's internal controls and appropriateness of its financial statements are found within Item 8 - Financial Statements and Supplementary Data of the Form 10-K. Item 1 provides general information about the company and its business, Item 7 is Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 9 is the company's market price for its common equity and related stockholder matters.

Question 9

Annual reports are filed with the SEC on
A)Form 8-K.
B)Form 10-Q.
C)Form 10-K
D)the MD&A section.

Accepted Answer

Annual reports are filed with the SEC on Form 10-K.

Question 10

Horizontal analysis is analysis in which
A)financial statement lines are expressed as a percent of the base (earliest)year.
B)all items are presented as a percentage of one selected item on the financial statement.
C)a statistic is calculated for the relationship between two items on a single financial statement or for two items on different financial statements.
D)ratio increases and decreases are presented for the past two accounting periods.

Accepted Answer

Horizontal analysis involves comparing financial statement items over time by expressing each item as a percentage of a base year. This allows for easy identification of trends and changes in financial performance. Option B is referring to vertical analysis, while option C is describing ratio analysis. Option D is incorrect as it only focuses on ratio changes, not on overall financial statement changes.

Question 11

Measures of ____________________ evaluate how efficiently a company uses its assets,that is,the average length of time required for assets to be consumed or replaced.

Accepted Answer

The answer of Measures of ____________________ evaluate how efficiently a...

Question 12

A banker is analyzing a company which operates in the automotive industry.Which of the following will likely be the banker's most important consideration in determining whether the company should receive a loan?
A)The automotive industry suffers from political pressures concerning environmental regulation of products.
B)Inflation has been consistently high for several years.
C)The company has state-of-the-art automated equipment which enhances the efficiency of its operating process.
D)The company has a large amount of interest payments related to other outstanding loans.

Accepted Answer

The company's ability to manage its existing debt, as indicated by a large amount of interest payments related to other outstanding loans, is a critical factor in determining its creditworthiness and ability to take on and repay additional loans.

Question 13

Time series (or trend)analysis is analysis in which
A)dollar changes and percentage changes in a company's financial statement lines are compared over several years.
B)all items are presented as a percentage of one selected item on a financial statement.
C)a statistic is calculated for the relationship between two items on a single financial statement or for two items on different financial statements.
D)ratio increases and decreases are presented for the past two accounting periods.

Accepted Answer

Time series or trend analysis involves comparing dollar changes and percentage changes in a company's financial statement lines over several years. This helps in identifying patterns and trends in the financial performance of the company over time. The other options - B, C, and D - describe other types of financial analysis.

Question 14

____________________ assets generally include cash,accounts receivable,and short-term investments.

Accepted Answer

The answer of ____________________ assets generally include cash,accounts receivable,and short-term...

Question 15

Which of the following statements is true regarding horizontal analysis?
A)It can only be used with balance sheet accounts.
B)It can only be used with income statement accounts.
C)It expresses each financial statement line item as a percent of the largest amount on the statement.
D)It expresses each financial statement line item as a percent of an earlier year amount.

Accepted Answer

Horizontal analysis expresses each financial statement line item as a percent of an earlier year amount in order to compare how the line item has changed over time.

Question 16

When a financial analyst determines the percentage change in operating income for the five-year period from 2011 to 2015,she is performing a
A)time series analysis.
B)vertical analysis.
C)profitability analysis.
D)cross-sectional analysis.

Accepted Answer

Time series analysis involves analyzing data over time to identify trends, patterns, and changes in the data. In this scenario, the financial analyst is analyzing the operating income for a five-year period, which is an example of time series analysis. Vertical analysis involves analyzing the percentage or proportion of each financial statement item to a base amount, while profitability analysis involves analyzing the profitability or return on investment of a company or project. Cross-sectional analysis involves comparing different companies or projects to identify performance differences or similarities.

Question 17

When an investor is evaluating whether to purchase stock in a company,which of the following considerations is most important?
A)Will working capital be sufficient to support growth?
B)Will the key ratios be reported on the balance sheet?
C)Will cash flows from operations exceed net income in the coming years?
D)Will the company earn a satisfactory return on the amount invested by stockholders?

Accepted Answer

The most important consideration for an investor when evaluating whether to purchase stock in a company is whether the company will earn a satisfactory return on the amount invested by stockholders. This ultimately determines the potential for the stock to appreciate in value and provide a return on the investor's investment. While considerations such as working capital, key ratios, and cash flows are all important factors in evaluating a company's financial health, they are secondary to the potential for shareholder return.

Question 18

Form 10-K for a public company is required to include the following financial statements for the most recent period of time including:
A)2 years 3 years
B)2 years 2 years
C)3 years 3 years
D)3 years 2 years

Accepted Answer

A Form 10-K for a public company is required to include the Balance Sheets and Statement of Cash Flows for the most recent 2 years and the Income Statements for the most recent 3 years. Therefore, option D (3 years for Income Statements and 2 years for Balance Sheets and Statement of Cash Flows) is the correct choice.

Question 19

In evaluating a company's financial statements,the least useful information would be derived from a comparison of the current period data with A)economic and industry data. B)another company in the same industry for the same period. C)the same company's data from five years ago. D)the same company's data from the prior year.

Accepted Answer

Comparing current period data with the same company's data from five years ago is generally considered the least useful. This is because financial performance can be significantly influenced by numerous factors over such a long period, making it difficult to draw relevant conclusions for the current period's performance. Shorter term comparisons, such as with the prior year, another company in the same industry, or against economic and industry data, are typically more relevant for assessing current financial health and trends.

Question 20

A company's relative mix of debt and equity financing is referred to as its __________ structure.

Accepted Answer

The answer of A company's relative mix of debt and...

Quiz 12: Financial Statement Analysis

Various financial ratios,including payout ratios,are categorized as ____________________ ratios.

Which of the following would report the market price of the company's stock?

A financial analyst is comparing two companies using a top-down approach.Which of the following would cause problems in the evaluation process?

The working capital of a company is equal to

Various financial ratios,including return ratios,are categorized as ____________________ ratios.

Each of the following is included in the MD&A section of a public company's Form 10-K except:

The auditor's opinions regarding effectiveness of a public company's internal controls and appropriateness of its financial statements are found within the Form 10-K on

Annual reports are filed with the SEC on

Horizontal analysis is analysis in which

Measures of ____________________ evaluate how efficiently a company uses its assets,that is,the average length of time required for assets to be consumed or replaced.

A banker is analyzing a company which operates in the automotive industry.Which of the following will likely be the banker's most important consideration in determining whether the company should receive a loan?

Time series (or trend) analysis is analysis in which

____________________ assets generally include cash,accounts receivable,and short-term investments.

Which of the following statements is true regarding horizontal analysis?

When a financial analyst determines the percentage change in operating income for the five-year period from 2011 to 2015,she is performing a

When an investor is evaluating whether to purchase stock in a company,which of the following considerations is most important?

Form 10-K for a public company is required to include the following financial statements for the most recent period of time including:

In evaluating a company's financial statements,the least useful information would be derived from a comparison of the current period data with

A company's relative mix of debt and equity financing is referred to as its __________ structure.